Acquisition of Motorola
Eric Brown
Dr. Ross
Contemporary Business
February 13, 2014

Acquisition of Motorola
Google’s acquisition of Motorola
Google announced on August 15, 2011 that it will acquire Motorola Mobility Inc. (MMI), for a sum of $12.5 billion. This was a vertical form of merger as the supplier (software provider) acquired its hardware client (Motorola).
Reasons for acquiring MMI * Google’s android operating system has been sued by companies like Microsoft and Apple for patent infringement. The company sought access to just MMI’s patents and hence ensured the independence of MMI as a separate company. * MMI is a big market player for mobile phones hardware. Its phones with Android platform proved to be huge success. Joining hands with Google will increase its ranking in the market. * MMI’s smartphone sales increased over the past year. Here, Google had a big opportunity to improve its share in the smartphone market. * MMI had developed and launched many breakthrough products over the years. MMI was the first company to introduce portable cellphones. Google hoped to benefit from technological innovations of MMI. * The two companies will be integrated to provide complete mobile phones and thus they will be better able to compete in the market with other top players.
Impact of the deal
The two companies together were expected to accelerate innovation and choice in mobile computing. Since Motorola is good at devices and Google is good at the software, hence the consumers will gain the maximum in terms of minimum cost and highest quality. Google itself earns great profits from its advertisement business; acquisition of MMI will prove to be more profitable, as MMI independently earned pretty good earlier. Other benefits were also expected from the deal like development of next generation mobile computing, delivery of extra services like using the Motorola’s cable TV boxes to take advertising to the living rooms, competing with other mobile phone developing companies and developing designs so as to comply with the government’s regulations and companies’ needs. One of the biggest motives of Google with this acquisition was to compete with Apple and Samsung, with more focus on Apple.
Impact of acquisition on competitors Apple has a great growth curve since 1997 when the company neared its bankruptcy. Both its price as well as EPS has been growing at a high pace. It is now a sought after stock by many investors. Apple’s iphones have been huge success. The acquisition of Motorola by Google has not been able to faze off the investors’ confidence in the company. With regards to Microsoft and Nokia, both the companies have been losing on in the market share. But with their huge patents portfolio, there are chances of another takeover in the industry. Though Nokia is likely to be taken over, Microsoft can try to take over some hardware manufacturer.
Other Android operators like LG and HTC are just wary. They believe that benefits of innovation in Android eco system by Google will go first to Motorola, however Google always maintained that MMI will always be run like a separate company. Samsung is least affected by the deal and is able to maintain its market share. However, HTC is worst affected. Its sales dropped drastically in 2012. It seems to be a likely candidate to be taken over by Microsoft.
Financial status
After the acquisition, Google’s revenues rose from $10.8 billion to $17.5 billion. When Google announced about the acquisition and agreed to pay $40 per share, MMI’s share price increased by almost 60%, from $24 to $38. On the other hand, Google’s prices dropped immediately by around 10% in that week from $557 to $449. This is in line with the common trend that usually the acquired price increases and the acquirer’s price decreases, especially when there is substantial risk in the deal. There were apprehensions in the market about the real reasons behind the deal; whether the deal was to acquire the rights over patents or whether the company wanted to control the end-to-end consumer experience.
The news also impacted other players in the market. It was expected that android manufacturers will shift to Windows based phones. So, Microsoft’s stock rose by 1%, whereas Nokia’s shares rose by around 11%. This showed the market sentiment that the investors expected that Microsoft will take over Nokia. Since there was a common belief that Apple will remain unaffected, hence Apple’s shares also increased in price (Verma, 2012).
Lenovo’s acquisition of Motorola
On 30th January, 2014, Motorola was acquired by Lenovo from Google, for $2.91 billion. This deal obviously brings in huge losses for Google as the company purchased Motorola for $12.5 billion around two years ago. Motorola’s acquisition has been the biggest in Google’s history. The company hoped that it will get the benefits from Motorola’s patents. It hoped to avoid and be saved from the patent infringement lawsuits that it faces from the companies like Microsoft, Apple and Nokia. However, the company’s hopes were shattered as the patents turned out to be worthless since they were basic essential patents which gave Google very little bargaining power. With the acquisition of Motorola, Google was clear that it just wanted to use the patents and not the handset business, as it did not want its vendors to compete directly with Motorola’s. That’s why the company kept Motorola isolated ensuring that it doesn’t get unfair advantage from new Android features and releases. But even the patents proved worthless, so there was no point that the company keep on holding Motorola. Also, this will give Google some breathing space from the regulators worldwide. So, the company instead sold the business to Lenovo.
As far as Motorola is concerned, this deal brings both positives and negatives for the company. The biggest loss is that the company will now get deprived of the way of working of Google. Google probably did not sell off the R&D department which was working on products like smart tattoos, modular phone and smart pills. Motorola will be deprived of such innovations. On the other hand, the company will benefit from the acquisition by Lenovo. Lenovo has a huge market for mobile phones also in many high growing countries. Motorola will also benefit from the market of Lenovo.
With this deal, Lenovo is the company which is gaining the maximum. This acquisition comes at a bargain price of just $2.91 billion which also has to be paid by $660 million cash, $750 million in shares and remaining spread over three years. This puts the company in a very favorable situation. Apart from financial benefits, the company will get license to Motorola’s patents that Google will retain and will get 2000 patents itself. It will also get the trademark and copyright of the brand Motorola. Lenovo is known for transforming the brand ThinkPad after it acquired it from IBM. It is hopeful that the company will also transform Motorola. Also, Lenovo presently does not have access to US and Latin American markets. It will get access to those markets through Motorola. Motorola’s relationships with the carriers will be extremely helpful for the company. The most important benefit that Lenovo is expected to get is that it will get some access to Google’s business also (Agrawal, 2014).

References
Agrawal, R. (2014), An analysis of Lenovo's $2.91 billion acquisition of Motorola, retrieved on February 07, 2014, from: http://www.dnaindia.com/scitech/report-an-analysis-of-lenovo-s-291-billion-acquisition-of-motorola-1958330
Verma, A. (2012), Google’s Motorola Acquisition: A Case Study, retrieved on February 07, 2014, from: http://www.tmu.ac.in/pdf/viewpointjultodec2012/final_inner_12.pdf